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Edited Transcript of KTY.WA earnings conference call or presentation 8-Aug-19 10:00am GMT

Half Year 2019 Grupa Kety SA Earnings Presentation

Aug 22, 2019 (Thomson StreetEvents) -- Edited Transcript of Grupa Kety SA earnings conference call or presentation Thursday, August 8, 2019 at 10:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Dariusz Mañko

Grupa Kety S.A. - President of the Management Board & CEO

* Piotr Wysocki

Grupa Kety S.A. - Member of the Management Board

* Rafal Lechowicz;Chairman of the Board

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Conference Call Participants

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* Pawel Wieprzowski

Wood & Company Financial Services, a.s., Research Division - Research Associate

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Presentation

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Operator [1]

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Ladies and gentlemen, welcome to today's meeting. We will discuss the results after the second quarter of 2019. The presentation will be carried out by Dariusz Manko, Chairman of the Board. But individual segments will be presented by [Rusal's] Board members, member of Kety Group, is responsible for the Extruded Products segment and Rafal Lechowicz, Chairman of the Board; Alupol Packaging SA, which is the leading company in our segment of flexible products, packaging. So Mr. Chairman, shall we start now?

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Dariusz Mañko, Grupa Kety S.A. - President of the Management Board & CEO [2]

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Good afternoon, ladies and gentlemen. Welcome during this vacation time. Well, we have to work so we can understand each other perfectly well. Let me start our presentation with general information on what is happening in our company, what has happened during the second quarter. As you can see, this is 24th probably quarter in a row where our revenues are growing. I don't know what the future holds for us. But well, after we are -- we had 24 quarters with growing revenues and that wasn't in our dream before, and that was mainly due to the export 8% growth of sales in Poland. This is a good result as well, and we are very happy to see that and share it with you during our meetings that over 47% of our sales is exported. So it is very important for us because export gives us the opportunity to reach a huge market, definitely bigger than just the domestic market, Polish market.

What else is worth mentioning today about the second quarter? Well, the growth of EBITDA, of course. So despite the cost that was connected with media, with payments such as energy costs or salary pressure. So we can safely say that we were able do it and to cope with it, and our EBITDA increased by 7% year-on-year whereas the last year was a perfect year for us because we had a lot of orders. So we were able to actually select those orders that we liked to do. Well, another issue is the cash flow and PLN 30 million -- PLN 130 million in operating inflow. Well, this is a great result, and I believe our shareholders are very happy to see it. Well, the third quarter, what can we tell about the third quarter? Well, we are talking about stability, but we are a little bit afraid of the slowdown that is noticeable already, especially in the German market from our perspective. This relates mostly to the automotive industry. Well, luckily this only -- [a small] part of our sales. This is just worth one of the industries. We also sell for, for instance, construction industry, and this industry is doing quite well. We are quite brave, quite courageous in writing that we are expecting a good stable third quarter.

And now macro factors, element, the euro price is similar to the past year. Well, the price of aluminum in Polish Zloty and the growth of the price of U.S. dollar. Well, these factors mostly impacted our company. While the growth of sales around PLN 96 million was because of the mix of our products and growth of volume of our sales. Well, this value would be higher by PLN 18 million. Even the level of aluminium was comparable to the past year, the price, I mean, the price was just the same as last year. So the growth of our revenues is a very good news for us, but there is still room for further work and further development.

Now with regard to our sales, as I've already mentioned, mostly export was the trigger and driver of our growth, especially in the EU member states. So while the sales in the U.S. was lower, but I've said it so many times and you know it perfectly well, that depending on the contracts and seasons. Well, the sale -- sales in the U.S. -- well, we have continued our sales. It is continuous sales. But well, our wins can be called incident. So depending on how the incidents work and what is the order of incidents, those contracts work like that. I can only ensure you that there are already contracts in the U.S. and that should be signed soon and should cover the coming years. So well, I may say that this market is nowadays disappointed -- disappointing. And now, Director Wysocki, please tell us a bit about your segment. Over to you.

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Piotr Wysocki, Grupa Kety S.A. - Member of the Management Board [3]

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Well, record-setting sales during the second quarter, we are showing Q3 [years, 3 past years. This is the second best quarter that we had, well, the best sales in the second quarter, and we are showing only 3 years. But if we look through the history, well, this is a record-setting sales in the second quarter. It is over GBP 20,000. And as the Chairman has already highlighted, we were able to achieve it with the drop of 14% drop of metal. We are showing you 4% up. But we still have to remember about this important element that is 14 drop off in metal. Well, if the metal was the same as in previous years, then the growth would be even bigger. Now we are trying to transfer [from the cheapest] industry, so those industries that offer us a bigger, higher margin. And you can actually notice the change that was happening during the past 3 years.

Well, the [cheapest] industry so far was the [stockholders] and from a 19% we dropped down to 11%. And that was the direction that we followed. We can see also the growth in other margins such as automotive margin. Well, it grew quite nicely from 10%, 2 years ago, up to 13% right now. Right now, it may not be the most -- the best direction, but we are trying to diversify everything. And we can actually see that any troubles that affect the automotive industry will not affect us that much because this is only 13% of our sales though it is growing. On the direction, well, we've started it some time ago and now we have quite a powerful position. And the latest contract that we signed during the second quarter was the contract for Mercedes G doorsteps, and there is another contract that we are completing for this luxury car, Sirius. So a luxury Sirius or luxury car. And that is approved that the ordering part has caught quite a trust in our products because we continue to sign new contracts. And here, I'd like to show you the work on increasing production efficiency. So plus 20 years and 5 years, plus we are working on increasing the efficiency of the process. Well, we are showing to you actually the graphics and graphs, the old press that is actually growing 10% more efficiency, and a new 5 year old press, a lot is left still to be done. And while the graph shows you the increased -- improved efficiency and [protruding parameters] improvement, this is quite a huge improvement as you can see on the graph here. And at the bottom, we are showing you the extent we purchased and implement robots in our plants on the right. This is the example of a completely new robot, it has been launched during the second quarter. 5 years ago, when we were buying a Slovenia plant, we were buying it because it was a highly robotized plant. And that was one of the goals of our acquiring which meant purchasing technology, learning new things, while [they] were more involved in the robotization, though not in all scopes in, for instance, not in all areas robotization can be actually done. But processing of details for the elements production for automotive industry where seconds are important robotization is very important.

Robotization is also important because human work is more and more expensive, salaries are growing and robots do not have this kind of expectations. You just buy a robot and implement it. And now with regard to our investments. Well, there are no risks here, no threats here. So the press for hard alloys has been launched and is working fully right now. Analyzing line, the second unit, we have started construction. The equipment has been contracted already. Well, this is also connected with coal generation project that will help us to decrease the cost of heat and energy and because of the coal generation project, we will have the energy that will feed our advertising line, support our advertising client. And that is all from me in terms of interesting facts.

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Rafal Lechowicz;Chairman of the Board, [4]

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Welcome, ladies and gentlemen, and I hope that you can hear me perfectly well. And now Slide #1. I am very happy to present the results of the Alupol. So the Flexible Packaging segment after the second quarter of 2019, the results are very good. Well, the sales are growing by 13% as compared to 2018, and 13% is the growth, 11% growth of sales in Packaging segment, 19% growth of sales in Films segment. And we also have profits growing, which is even quicker growth, over 30% growth of sales, growth of profit and PLN 30 million of profit in EBIT -- on the level of EBIT. EBITDA is also record tracking PLN 37 million, and this is 24% growth. And because the profit is growing quite as fast as compared to the sales, that means that margins are actually growing, and this is the fact. So EBITDA margin is growing in Films segment from 10% to 11.3%. So for 0.4 percentage point, and the EBITDA margin in Packaging is growing from 20.3% to 22.6%, so 2.3 percentage points. So our competition, so the biggest European players have shown their results, you can -- they've been published online. The reports are published. So the margin -- their margin is around 12% on EBITDA level. And in Packaging, our margin was 22.3%. Then the higher growth was in net profit it is over 60% growth year-on-year, and the net profit grew from PLN 14 million to PLN 23 million. So that means that it grew by PLN 9 million year-on-year. How does that work after 6 months? Well, very similar sales growing by 13% up to PLN 393 million. EBIT is growing by 28%, up to the level of PLN 59 million, whereas EBITDA is a record-setting PLN 73 million. And this means a 21% growth.

Also in this case, our net profit is growing. There -- is the fastest element and is growing from PLN 30 million to PLN 46 million. So -- and this is PLN 60 million more than last year.

Well, just to -- we had not one offset. So this is just a growth, pure growth. And now sectors split up. So let's start with Instant Food. They are responsible for 33% of total sales of Alupol group. Now while we have growth here by 7%. We also have a confectionery and breakfast cereals sector. They are responsible for 7% of total sales, and this is only 1%. We are not concentrating on this sector because the margins are really low. We concentrate on just delivering portfolio, basic portfolio to our customers. And now we are moving to BOPP fields. And this is 71% of total sales. And as you can remember, after the first quarter, it was only 27%. And right now, this is more or less 1/3 of our business and the growth here was 19% year-on-year. And now as far as fresh food sector is concerned, as you can remember, this is our newest sector and we are focusing on it quite well and that's quite effective. We are growing by 20%, and this sector is responsible for nearly 14% of total sales.

And now, ladies and gentlemen, I'd like to make a short summary recap and share with you information concerning Packaging business. This is Packaging business been growing by 11% year-on-year. Now Films are growing by 19% year-on-year.

And now next slide. Let's take a look at geographical split now the markets that we operate on -- well, in the second quarter, the second quarter brought what we have estimated. So well, that happened slightly quicker, our sales in Poland and abroad are equal, export is growing by 17% year-on-year. Where do we grow, whereas the domestic currently sales is growing by 10%, we are growing in -- well, we are not growing in East Europe. Ladies and gentlemen, the flexible packaging segment does not like too much risk if the insurance companies are not willing to give us credits, trading credits. So we will not be growing on markets where this kind of problems exist. On the other hand, the margins that we had there were definitely worth -- definitely lower than the margins that we have in West Europe -- Western Europe.

So definitely, we want to hold on to the main segments on main markets, because the geopolitical situation can always change, but we are not planning farther development there, whereas our sales in Central Europe is growing. Well, this is 12% of total sales, and the growth here is 7%. Because our export is growing by 7%, and Eastern Europe and Central Europe are more or less flat, somewhere there must have been an explosion somewhere there. And we are very proud to say that definitely this explosion happened in Western Europe. So the growth here is 40% as compared to the record-setting last year. As you can see, Poland is 50% and Western Europe is responsible for 30% of total sales of flexible Packaging segment 50.6% to 49.4%. So Poland versus export. This is the ratio.

Next slide, please. Ladies and gentlemen, now investments. Well, I have prepared this to show you the upper photograph. This is the line and that is used by us generating 31% of trade [over to] produce a BOPP foil in Oswiecim, and then we have elements of the installed unit production line. It is a complete line right now, installation has been completed, and we have started checkups. So this will take around 6 or up to 8 weeks. So if the supplier of the unit finds that everything is fine, then after 6 or 8 weeks, we will start production. We have spent 78% of our investment budget this is around PLN 66 million out of PLN 84 million that were supposed to be spent in 2019. We are not planning to go over that amount, but we expect that our investment will be launched faster than expected. So also, the Flexible Packaging segment, 2.5 years ago, we have started to construct the BOPP foil segment production. Now we are responsible.

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Percent of production, European production on BOPP Film. And then you think our latest investment that is a twin investment costs around PLN 110 million, the first one has been working, operating for 2.5 years. And well, we are really sure that by the end of this year, so within 3 years of launching the investment, this investment will generate around PLN 60 million of EBITDA profit. So we are very proud of the investment, and we are very happy to see it developing in such a way. Thank you so much for your attention, and I'm ready to answer any questions you might have.

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Unidentified Company Representative, [5]

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Thank you so much, Rafal. Now ladies and gentlemen, now let's move on to Aluminium Systems segment, we do not have Chairman Grela with us, so I will be filling in for him. That was a good quarter, especially in terms of exports, 20% of growth of exported sales, 14% in Poland. So good export in Benelux countries, Czech Republic, these markets are quite stable once you sign a contract when you start contracting, once you start meeting investors, producers, manufacturers. So while those relations become quite -- those bonds becomes quite strong and stable we also are very happy about new markets that we are working on, continue to work on, for instance, Persian Gulf, and Mr. Grela will talk about it more in the fourth quarter because we already have some [taxes] . Now we also started to sign a contract for Hilton Hotel construction in Caribbean, also a hotel in Georgia. These are quite exotic [destinations] , the exotic places, but we are very happy about them. And as I've mentioned, new facilities in the United States. As I mentioned before, and other perspectives according to the Aluminum Systems segment, the perspective, the outlook is quite goal -- good. So we will probably increase by 10%. This is our forecast as compared to the previous year. And with regard to the third quarter, and this will be a good quarter as well, concerning the EBITDA and net profit.

I have mentioned about this market, U.S. market, 2 new contracts, maybe nothing will happen for a long time and negotiations, talks and so on and so on. And then something happens and we have 2 facilities, 2 buildings. But well, I have to tell you that we've been working there from facility to facility, from location to location. Every location has to have a new unique solution as an architect wants to have unique solutions. So we actually have to prepare to work on the project because we have to create a new facade system for a building. We've started certification processes. So we want to receive certification for our standard products such as systems for windows, doors, simple facades. And then I'd like Mr. Grela to talk about that during our next meeting because we have quite an idea how to use this big market that U.S. has to offer and how to sell less portions to bigger amount, to higher amount of recipients, not to focus only on the big car contracts. And we believe that we have an idea how to start our operation there. So we could actually start production on the elements and to use the opportunity of selling to the American and Canadian market. And now on Products. Well, of course, in this segment, our operations must be continued in different directions. But first of all, we like to expand our geographical coverage. And therefore, Georgia, the Caribbean and America, but we also have to expand our portfolio of products. And an interesting fact, we have started to certify our products in the [marines]

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date to do the certification.

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A contract. In a big market and high-margin, offering high margins. I've mentioned the U.S. and Canada. And we are also producing anti hurricane blind roller, and that is connected with the environmental situation and the hurricanes that are happening mostly in the U.S. but also in Europe, we have more and more storms, heavy storms. And heavy winds, and therefore, there is quite a demand for this kind of blind rollers. So we have to produce this, but also certify it as well. And that's all, I believe, as far as Aluminium Systems segment is regarded. Well a couple of words about our investments. Well, we can tell you that just as with the other segments, so Flexible Packaging and Extruded Products segment. Well, it may be -- it may feel strange just as with the construction industry, we have a lot of changes. And -- but this may sound really strange to you, but we didn't have any problems in Aluminium System segments across the whole group. Everything has been completed according to the plan. And the hall has been constructed for our vertical powder coating line in -- by a highway to Czechia, from Bielsko-Biala to Czechia towards Czech Republic. This is where you will see our laboratory, it looks really great. This is an interesting area for development. And we started the first operations that concerned our laboratory. And the next slide, as you can see, we have a test stand, so fire resistance test, chamber for leakage tests. Well, everything is according to the plan. Also, when it comes to investment expenditures we don't really have any surprises from our contractors trying to change any contracts or increase -- increase the prices, nothing like that happened. We have the laboratory and a lot of [stand] , for instance, fire resistance and leakage test, chamber for leakage tests and that gives us quite a good opportunity to develop export sales, which is our main goal, and we are quite competitive as compared to other companies. So well, this all looks quite good in terms of this line. So we don't really see -- and there's -- that all concerns the construction industry. We don't see investors giving up works because there is any threat to financing. We don't see any slowdown, any changes in the situation in construction industry. We don't see anything like that.

New slides, these are really just interesting facts, if you noticed that this is constructed in Warsaw, in Katowice and Poznan. These are the examples of our projects, also in the European Union. In the past, it was just a dream. And now it's just normality that we are completing projects in Denmark, the Netherlands or Caribbean as I've mentioned before, and buildings are constructed according to the Polish technical [issues] , and Polish engineers are actually doing quite fine in those countries. And of course, the United Kingdom. And before we had a question, what will happen after the Brexit, are we afraid of it. And then, of course, this is nothing good for business. This is no good situation for business because there will be new tariffs, new taxes and so on. But we can't go panicking -- go on panicking because the market will always somehow deal with it, will find new parts, new ways to exchange the goods.

Sometimes, it seems that there is too much hysteria behind it. The United Kingdom will not be just isolated completely. Well, we will continue in exchange of goods. And I believe that we've been working together for a long time. And we remember the times where the taxes were so much higher. And we remember the situation where we had a great Russian market with great margins with great projects, and then it stopped. Suddenly, we are not really selling that much to Russia. And we are functioning. We are operating and other companies are also operating. So it's the matter of actually getting used to new conditions. So that's all about aluminium segment. And of course, you will [answer] the questions should they be asking [me how] . Please let us move to the financial issues that are the most important. So I am representing Adam Piela, today, who couldn't join us today. But he is still a Financial Director in our company. He is not the member of the board, but he is Financial Director. So he couldn't join us today, but he asked me to actually -- to thank you for cooperation with you for the contract. So I'd like to tell you that Adam is working. Everything is fine. And of course, our reaction to stress and to burden say is different, and sometimes we have to say, I need to slow down, rest a little bit. And that is happening to our colleague, and he is still in the company, he is working. And he is the author of what will be presented in a moment on behalf of him.

As you can see, these are the elements of our

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So we can safely say just as we used to say, as we always say that we may be boring, but we are very happy to present better results that every time, we made our results better, and that is nothing new. And they are not really much different than the budget estimations. So well, the results would be even better if the aluminium price would be lower, if the aluminium price was lower, and this is PLN 18 million. But the mix of product volume, this is the growth of around [PLN 103 million], 1.1% growth also of the flexible packaging income. EBITDA also grew. We are very happy to see it. And the net profit before tax, though the FX gains and losses is lower, well, our net profit is still really great. And now the costs. What is important here?

Well, the increase of costs is connected with the volume. I don't have to explain this, of course, the energy cost growth, but we knew about it. I don't know if we will hear anything about it because [nothing can say anything] . We were supposed to be reimbursed, but we don't see it happening in the near future. But this is the cost that we will have to cope with. And the remaining issues. So salaries and external costs, well, everything is up to our estimations in the budget. So we are not afraid of it. And now about the moment in economy now, the decreasing, the worsening situation, the slowdown in some industries. As it was said before, it is not really affecting us that significantly. But this is an important moment, a moment that is needed by the economy or company because if you have a lot of orders and everything is going really great, then maybe you stop being as vigilant as you should be. Maybe you -- well, we have more orders from our employees, PLN 1,000 for each employee, that became a new norm, new standard. So once we find out that we are not living in a golden country then maybe everybody can actually verify their own positions. So it's not that we are happy about it. But we always need this slowdown moment to actually take a deeper look at all the processes in the company to be -- not to be too relaxed.

So we have made some steps already. We started talking to our employees, to the trading department. And that's really great because, well, this is the time for us to focus and to work harder. Of course, the slowdowns can be difficult, but often, it happens that some companies fail to notice this kind of moment. But this moment, when it is a little bit -- the situation is a little bit worse, then the Polish zloty is doing not as good. So the foreign -- the exchange rate changes. So this is good for us in terms of profits. And we can always look for lower-cost suppliers. And if the German -- for instance, if the German company notices that, everything is fine, and they've got a lot of orders, then they are not really interested in finding new contractors. But if the orders drop down they are more interested in finding new contractors and lower prices. So this is actually a great time for us to find new contracts outside of Poland and our trading department is already ready for it and doing -- and working on finding new -- attracting new customers outside of Poland. Another slide, and this is something great to share with you. So flows, sometimes this may be the moment when people are afraid of the slowdown and what to do.

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Unidentified Company Representative, [6]

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Well, we continue, as usual. We have to actually take care of the working capital, what is happening with regards to inventories, receivables, liabilities. And then we have to actually take care of the capital and to actually work out a better cash flow with a better discipline. And this is still what I say, you can always find a good advantage of a situation. And we see those advantages. And our good result is also because of the price of the raw material in Polish zloty is lower. So our capital -- we don't really have to spend so much capital on that. So [upper] working capital and the price of the raw material in Polish zloty, this is all that helped us to have such a positive cash flow. I don't fully remember, but last year, we have PLN 120 million after 6 months. And well now, we have PLN 130 million after 1 quarter. And now financing, nothing really is changing here. Our debt -- net debt is about PLN 684 million, same banks. So the debt ratio at optimal levels, net debt equity, 0.5%, net debt EBITDA, 1.4% full and stable financing. So we don't really have any problems, any discussions, negotiations with the banks. Everything is according to the plan.

So summary, maybe we have skipped this, but we failed to talk about our investments. And the investments are actually progressing according to the plan. So our expenditures, or planned expenditures, and this is around PLN 200 million up until the end of this year. Our budget estimation was PLN 284 million, so PLN 84 million is multiple. We don't really have projects for that. And we may have a slight delay in the -- and there is incline in maybe some smaller investments that will not be completed. So maybe PLN 284 million will not be spent. But around 70% of investment expenditures will be spent this year, definitely.

Summarizing, we had very good financial results. We have a stable outlook for the next quarter. We are focusing on what is happening on the market. We are observing the market. We have been in the business for a long time, and we are too old, too experienced to be too nervous. We are not expecting a huge breakdown such as in 2009. And that one was actually connected with the credits with the loans in the U.S. which affected the whole world. Our company is quite -- is doing well. We have closed [down] the biggest investments. Nothing is open. There are no positions that we should be afraid of. Nothing will be affected as big. As it was said before, we are introducing a lot of robotization in automotive projects. So also our employment situation is quite good, but we are employing also first lines to outsourcing. So we cooperate with external companies to outsource employees, and we are working full-time, 24 hours. There is space to actually change something there. And we have a quite -- or quite at peace when it comes to the future. We are quite sure that the future will be fine. There is an interesting situation on the market. This is something interesting to take as a challenge. And as usual, the strongest win. And I hope that our company will be a winning company. And that the next quarter, we will be presenting as good -- we'll be presenting our results that will be as good as this quarter. So thank you so much for your attention. So thank you, ladies and gentlemen. And now if there are any questions, let's start here.

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Questions and Answers

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Unidentified Analyst, [1]

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I have a question because you are usually saying the revenue guidance in all systems, but only in aluminium this time. So what can we expect in, for instance, flexible or extruded product segments? You have provided just the aluminum system's revenue guidance in the third quarter. What can we expect in the third quarter for in other segments? Usually, you are providing this kind of information.

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Unidentified Company Representative, [2]

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I can't really share a specific number, but we are not expecting that this quarter will be the worst.

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Unidentified Analyst, [3]

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You have always said 5% to 10%.

This is what you have always provided, this kind of information.

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Unidentified Company Representative, [4]

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This will be 0 to 5%.

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Unidentified Analyst, [5]

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How about flexible packaging?

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Unidentified Company Representative, [6]

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Talking about revenues. In the third quarter, we are planning growth as compared to the previous year, 5% to 7%. So the same dynamics as during the past 6 months of 2019.

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Unidentified Company Representative, [7]

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Let me add that it's August, so extruded products segment, well, we have worked quite well during July. And August looks as hard-working as other months. So definitely, 5% is quite viable.

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Pawel Wieprzowski, Wood & Company Financial Services, a.s., Research Division - Research Associate [8]

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Pawel Wieprzowski. My first question concerning the second BOPP line that is to be launched. Will it [be functioning] in the fourth quarter? Will there be any synergies between this line and the first line BOPP?

So well, it's -- the generation was around PLN 4 million per quarter.

Can we see the PLN 4 million in the fourth quarter as well?

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Unidentified Company Representative, [9]

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Well, the first question, launching in the fourth quarter.

Well, this is not at risk. This should happen, but as I've said it before, one machine can -- machine with 100 employees working, one machine generates 1/3 of revenues of Alupol packaging. Can you imagine that. Also in kilograms, it produces as business packaging. So these automatic lines, machines are really wonderful. This machine is very specific. It comes with such parts that prevented it from launching 100% of capabilities. So we start with 50%. We go through 8 week long check-ups. Then we start production. So 50%, 60% next month, 70% next month until we reach 100%. And then we have to find the market because market doesn't wait for Alupol Films to launch a new investment that is responsible for over 3% of European market. So this will take time.

Well, definitely, the task will be harder than for the first line. So the first line was launched quite quickly and was doing -- was succeeding very fast. So we will have to fight for the market. But the first line has generated PLN 16 million of EBITDA during the first year of its operation. So 2020, if this was to be the same year, but it will not be -- we would be talking about PLN 16 million. But synergies, the second part of the question. Yes, I've mentioned that before. We believe that with the help of 2 lines, we will have 12% of EBITDA generation -- EBITDA margin will be generated by 2 lines, 12%.

The fourth quarter, please don't make an estimate. So I'm talking about 2020. We are now paying the cost because we have to actually employ employees. And they are employed already. And line is not operating here. So there will be a revenue, but -- well, profit can vary. So we can actually believe that this will be quite flat. And then it will be growing.

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Pawel Wieprzowski, Wood & Company Financial Services, a.s., Research Division - Research Associate [10]

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Another question. Aren't you afraid of the changes or the drop-down of EBITDA margin in flexible packaging?

Well, the economy is slowing down and the market is becoming more and more difficult. Then the Chairman has mentioned that the competition is pressuring lower margins.

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Unidentified Company Representative, [11]

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Well, this is nothing new. This has been happening all the time. Flexible Packaging segment is operating on higher margins than our competition, this is nothing new. Are we afraid? No, we are not afraid. We believe that we will be able to cope with it just as we've coped throughout the past dozens of years. So we will be coping. We will be dealing with it.

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Pawel Wieprzowski, Wood & Company Financial Services, a.s., Research Division - Research Associate [12]

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So how about the margin? Will you be able to keep it?

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Unidentified Company Representative, [13]

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Well, maybe packaging margin will drop down a little bit. And the Film's margin will grow a little bit. But we are definitely optimistic about the coming period. And of course, the growth will not be as successive, as enormous as during the 2019, the first 6 months of 2019 because we have actually generated already PLN 34 million of EBITDA. And in the past years, it was PLN 30 million only EBITDA generated. So the growth is quite dynamic. So we definitely want to stick to the results that were achieved during the first and second quarter especially with regard to the third quarter.

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Unidentified Analyst, [14]

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Now about the volumes in the flexible Packaging segment. So will they be similar to the first 6 months or maybe any different?

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Unidentified Company Representative, [15]

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Well, similar. Only December is one -- they can -- sometimes our customers manufacture up until Christmas. And sometimes they switch off the machines earlier. We can have no control over it. So until November -- July to November, this will be the same.

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Unidentified Analyst, [16]

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Now this is all about flexible packaging. Now extruded products. The second quarter EBITDA margin year-on-year, 3 percentage points lower. Aluminium price down. Well, that should actually support the EBITDA margins.

So any commentary about the second -- the coming 6 months?

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Unidentified Company Representative, [17]

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Now the dropping metal. Well, this is a process. The cheaper metal must go through the warehouses first. And then our customers have been hedged on other levels, this is a process. But usually, we use the situation of the dropping metal, with the dropping metal the margin is not really dropping as fast. Now we have entered the market with 2 new processes. So several thousand new product -- tons of new products. So we need to actually work on that. But with new processes, they need to have actually a production so that we can work on the price.

So the second half of the year. Well, July was quite good. But July and August is -- are the vacation months. Well, in August, Italy is not working. More companies in Germany are not working. Now moving on to December, where we stopped around 20 December. So September, October and November are the best months, the high season. And we really hope that the seasonality will be maintained in this year. We can actually talk about September. Well, definitely, we will be -- production will be continuing.

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Unidentified Analyst, [18]

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So in the second 6 months -- half of the year, you will want to improve your margins?

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Unidentified Company Representative, [19]

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Yes, we would like to improve our margins.

Talking about the industries that are driving oil such as automotive. Well, we can't do anything about it. We can negotiate and improve margins there. But now as we actually showed you in the graph, the circular graph, so well our construction -- construction industry is the biggest industry for us. Well, this industry is progressing still and we will be actually able to work on the improvement of margins there.

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Unidentified Analyst, [20]

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And the lower price of aluminum should start helping you?

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Unidentified Company Representative, [21]

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Yes, it should start helping us. Thank you.

And now lower margin in the Extruded Products segment. During the second quarter, we had 16%, 17% on the level of EBITDA last year. But you have to remember that 16%, 17% for this industry doesn't happen often. And the margins that we had during the first 6 months of this year are more adequate, are more normal for the market, for the industry. So this will be setting the trend for the future.

Are there any other questions?

I am checking whether our online viewers have asked any questions. Please go ahead.

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Unidentified Analyst, [22]

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When are you planning to present the strategy for the next 5 years?

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Unidentified Company Representative, [23]

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Well, the vacations

(technical difficulty)

I can see that there are no further questions. And there is one question online. Let me read it.

As a result of overview of strategic option, the Board continues the further expansion based on the assets. What were the main scenarios taken into account and why they've been dropped?

With regards to the whole group and each segment, what kind of conclusions did you draw in the context of preparing a strategy for future years?

Ladies and gentlemen, let me tell you that the strategic options, the overview concerning the issue connected to -- with separating the company with regards to the segments. There are segments that are very correlated. So aluminium systems and the Extruded Products segment are quite correlated. And there were some opportunities that appeared on the European market, and they gave us the possibility to recognize -- they gave us a chance to build aluminium business in Europe, [Polish] business in Europe, on a bigger scale. And unfortunately, this [objective] was not followed. So we thought what to do.

One of the options was to sell the flexible packaging system. We took a good look at the flexible packaging systems -- Flexible Packaging segment. And we've heard that this may be just the end of this segment, that we will be using paper only. But all the analysis tell us that flexible packagings will be there, are there and will be there. And there are no better packaging materials. And we analyzed our development and investment possibilities, and it turned out that we were right. Please take a look at the packaging results today and a year ago. So if we tried to sell flexible packaging segment last year, it would be a mistake today. So we have some idea. So we've realized that we really know very well what we are doing, we are quite experienced. And we decided to actually continue working on the 3 segments. We are doing quite fine. And even if automotive is not doing that fine, we have other industries to offset the situation. And I've been in the board of Kety Group, and I've been a Chairman of the company for the past 15 years, so we had some moments when the packaging, flexible packaging helped us a lot. And sometimes when packaging, flexible packaging weren't doing that fine -- then we were selling [profiles] , and so on and so on. So this table's based on 3 legs. This 3-legged table is quite good for us and good for shareholders, for the investors. And I believe that nothing bad can happen in the company. These are our conclusions and based on our thoughts. But based on this experience, we want to prepare our strategy for the future years.

And I really hope that this was the good answer to your question. Therefore, is there any other questions that you would like to ask?

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Unidentified Company Representative, [24]

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Well, thank you so much, ladies and gentlemen, for today's meeting. And let me tell you that the next one will take part -- place after the third quarter. Thank you so much and see you next time. Bye.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]